Banks are central to the housing market because they lend money to businesses and developers to purchase properties and finance projects. Within the first five months of 2023, several banks failed. On March 8th, Silvergate Bank announced it would close and sell off assets after experiencing major losses. Two days later, Silicon Valley Bank (SVB) collapsed. Within two days of SVB going under, Signature Bank was shut down. And, on May 1st, First Republic was taken over by the Federal Deposit Insurance Corporation (FDIC), and sold to JPMorgan Chase. These failures stoked fears of another 2008 style plunge which could obliterate the housing industry along with other facets of the economy.
Banking failures often result in reduced lending, the effect of which slows the growth of the housing industry. The banking crisis of 2008, did just that, and the housing market crashed. Since then, protections have been implemented to reduce the likelihood that a significant banking crisis will occur again. As a result, fewer banks failed in recent years. However, according to Forbes, the 2023 bank failures are quite significant. The First Republic Bank closure represents the second-largest bank failure in the nation ($229 billion in assets); SVB is the third-largest bank failure ($209 billion in assets); and, Signature Bank is the fourth-largest bank to fail ($110 billion in assets).
Such breakdowns generate tremors regarding the overall stability of the banking system for the general housing market. However, with respect to the student housing niche, banking concerns are amplified. Many public institutions of higher learning contend with funding limitations from their respective states, which often translates into a reliance on debt to support student housing projects on or near campuses. Often a mismatch between student housing demand and availability exists, especially as enrollments outpace existing housing supply. This is especially the case for Historically Black Colleges and Universities (HBCUs) given the aforementioned as well as the legacy of inequity, lack of investment in and underfunding of these institutions.
To help address this situation, Student Housing of America (SHA) recently announced its HBCU Healthy Housing (H3) Initiative. With this initiative, SHA partners with HBCUs to renovate distressed properties near the university to provide high-quality, safe, and affordable housing for college students. Examples of our efforts include: Cadence near Southern University and The Scene at Sandhill near Albany State University. SHA also provides multiple support programs to offer a stable living environment through need-based grants, zero-interest loans, and food security and a pathway to success through informational videos/seminars on various subjects such as mental and physical wellness, financial management, and personal security, to help students succeed.
What additional industry concerns exist with respect to the banking crisis? A recent InterFace Student Housing Conference panel of experts addressed this topic in a “State of the Industry” discussion.
A core concern regarding these failures includes the ability for real estate investors/developers to secure adequate financing. With more limited lending capacity within the banking industry, some may find it difficult to secure funds for projects. The Federal Reserve, in attempts to stem inflation, increased interest rates ten times since January 2022. Thus, rising interest rates, which increases the cost of borrowing, is also a concern.
The panel raised another issue about lower transaction volumes for the remainder of the year. Donna Preiss, founder and CEO of The Preiss Company, suggested there may be a positive side to lower transaction volumes such as reducing the stress on the property management aspect of student housing. There was support for this notion as others on the panel noted obtaining construction financing will likely be more difficult in the short run, which also reduces the stress associated with high transaction volumes.
Concerns about the reliance on regional banks, and expected job losses as a result of banking failures were additional topics raised at the conference panel. Panelists stated that many large banks are very discriminating when it comes to financing student housing projects and also more costly than regional banks. The panel expects banking failures to continue and along with that, rising interest rates.
The bottom line: Although uncertainties remain with the banking industry, the panel agreed that the student housing industry is in a solid position. The industry is experiencing rent growth, high occupancy levels as well as high leasing velocity. They predict that interest rates will eventually come down and student housing will remain a sound investment opportunity.
Student Housing of America, Inc., is a 501(c)(3) non-profit organization with a critical mission of providing safe, affordable, residential housing for students attending HBCUs as well as resources that underpin student achievement and wellness. SHA supports its mission through affordable student housing ownership as well as financial support from donations and sponsorships. We are committed to working with schools, investors, and other organizations to ensure the success of HBCU students.
Please consider donating in support of SHA efforts to champion HBCU students, their academic endeavors, as well as overall their well-being and provide safe, affordable student housing.
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